IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 2 NO. 6 2016

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Measuring Volatility Effects on Daily Stock Market Returns in Nigeria

John Okey Onoh

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Abstract

Adequate knowledge about the volatility, performance and efficiency of stock returns remains vital and essential information to investors. These will guide not only investment decisions but also planning for economic growth and development. Given that the Nigerian Stock Exchange has existed, its ability to generate confidence is still in doubt given the recent crash witnessed in the market. It means the confidence the exchange is expected to instill in investors is still not commensurable. It was against the forgoing that this study examined the impact on stock market returns of volatility in the Nigerian Stock market. The study adopted the ex-post facto research design and data were obtained from daily reports of the Nigerian Stock Exchange from 2nd January, 2001 to 31st December, 2015. The study used the ARCH/GARCH to test the hypothesis stated. The results also revealed that, there is a significant ARCH/GARCH (volatility) effect on stock market returns of the Nigerian Stock market. This is because it was revealed that for stock returns, p-value was less 0.05 and equal to zero showing that the ARCH test statistics exceeds its critical value. Therefore, ARCH/GARCH test strongly rejects the null hypothesis that there is no significant ARCH/GARCH (volatility) effect in given return of all shares index. The study thus concludes that the stock returns contained correlation in its returns or squared returns, which meant that ARCH/GARCH process was found. After testing the dataset, the models were set up and run; the parameters were estimated for each of the model with their conditional volatility. As the conditional volatility is the main ingredient for forecasting volatility and its depended on conditional variance. Then, we check the quality of our estimated parameter and volatility. First test the innovations of each, that there are any kind of correlation is present or not. It was found that there is no significant correlation and ARCH/GARCH effect was present. Ther

keywords:

Volatility; stock market; daily returns; Nigerian Capital Market

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